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NEW DELHI: The Rs 446 crore RITES IPO is all set to hit Dalal Street on Wednesday, June 20. With this offer, the government intends to divest 12.6 per cent of its stake in the company.

RITES is a wholly-owned government company, a Miniratna (Category – I) Schedule ‘A’ public sector enterprise. It is a leading player in transport consultancy and engineering sector in India, and the only company having diversified services and geographical reach in this field under one roof.

RITES has experience spanning 43 years and undertaken projects in over 55 countries, including Asia, Africa, Latin America, South America and West Asia.

Issue detailsThe price band of the IPO has been fixed between Rs 180 and Rs 185 with the face value of Rs 10 each. It doesn't comprise any fresh issue of shares, but offer for sale (OFS) of 2.52 crore shares. As many as 0.12 crore shares are reserved for eligible employees. The minimum lot size is 80 shares.

Retail investors and employees will be offered a discount of Rs 6 per share. The QIB (qualified institutional buyer) category has been allotted 50 per cent of the offer while 15 per cent has been reserved for NIIs (non-institutional investors) and 35 per cent for retail investors. The offer will close on Friday, June 22.

RITES IPO: All you need to know about the issue

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Early bird catches the worm!

19 Jun, 2018

India's divestment juggernaut is starting to move, with the high-decibel RITES listing. The Rs 466-crore IPO (initial public offering) kicks off on Wednesday.
First to get off the block this financial year, RITES (Rail India Technical and Economic Services) promises much. Being a state-owned entity, will it deliver?
We have a fine print ready for you.

Why now?

19 Jun, 2018

That's a follow-up to Finance Minister Arun Jaitley's 2017 announcement of Indian Railways’ plans to list its subsidiaries after the merger of the railway budget with the Union budget. Rail Vikas Nigam (RVNL), Indian Railway Finance and IRCON International may follow suit.

What's on offer?

19 Jun, 2018

With this public offer, the government looks to offload 12.6 per cent of stake in the company.

Numbers that matter

19 Jun, 2018

The price band has been set at Rs 180-185 per share with face value of Rs 10 each. There's no fresh issue of shares, but OFS (offer for sale) of 2.52 crore shares.
On top of that, 12 lakh shares are reserved for eligible employees. At the upper price band of the offer, the company aims to raise Rs 466.2 crore.

A high-stake game!

19 Jun, 2018

Promoter's holding of 100 per cent in the company will come down to 87.4 per cent, post IPO. Public holding will rise to 12.6 per cent from nil. Shares will be listed on both the NSE and the BSE.

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Should you subscribe?All brokerages covering the IPO have assigned ‘subscribe’ rating to the issue.

At the upper end of the price band at Rs 185, the issue is priced at a PE of 10.5 times (post dilution) on FY17 and 11.4 times on nine months of FY18 (annualised) basis, which we believe is attractive, says Centrum Broking in its IPO note.

Price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

The company has no listed peer. RITES has good financials with Ebitda of nearly 28 per cent and RoE (return on equity) of over 16 per cent. It is virtually debt free, dividend paying and has positive cash flow from operations.

"Given RITES competence along with a good track record, healthy financials and attractive valuations, we advise investors to subscribe to the issue," the brokerage says.

FinancialsRITES has been consistently profitable over the past five years and has paid dividends regularly to shareholders. The company’s stable financial position enables it to satisfy the minimum financial eligibility criteria for bidding in projects which generally consist of financial parameters such as net worth and profitability for various projects across all market segments, Angel Broking noted in a report.

As per the Restated Financial Information, the company’s total income has grown at a CAGR of 9.61 per cent from Rs 1,083.05 crore in FY13 to Rs 1,563.27 crore in FY17 and PAT has grown at a CAGR of 11.61 per cent from Rs 233.06 crore to Rs 361.66 crore during the same period, the brokerage notes.
Angel Broking finds the valuation of the company reasonably priced considering following factors -

3.5 times of order book with execution capability and experienced management;

maintaining the RoE level in the range of 17-18 per cent;

Diversified client base; and

Increasing opportunity of revenue from Railways due to new investment in electrification and infrastructure.

"Given that RITES is a preferred consultant of Indian Railways along with other government authorities with exposure to international operations and fair valuation of issue, we recommend subscribe to the issue," it says.

RITES’ order book as of March 31, 2108 stood at Rs 4,818.6 crore, which is 3.5 times of FY17 revenue, which gives strong revenue visibility going forward.
The issue seems to be attractively priced considering its strategic importance, limited competition, virtually debt-free operations and healthy financial performance, Choice Broking said in a report. It has assigned 'subscribe' rating to the issue with long-term investment horizon.

Brokerage Arihant Capital says since there are no comparable listed companies in India engaged in the same line of business, the threat of competitors is low. It, too, finds the valuation attractive.

Kotak Securities observes that on EV/Ebitda basis, the stock is trading at 11.9 times FY18 Ebitda. The stock is trading at a discount to listed peer like Engineers India (EIL) with price to earnings ratio of 23 times FY18 earnings and EV/Ebitda of 15.2 times. "We note that to a large extent, EIL scores over HAL in terms of higher revenue visibility provided by its order book," the brokerage said.

However, in view of the reasonable valuations, buoyant outlook on railway capex and robust order book, it advises investors to Subscribe to the issue, it said.